• September 2019
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Exchange Act

A shortened name for the Securities Exchange Act of 1934.

This federal law was passed in response to the 1929 stock market crash. Its primary purpose was to govern transactions of secondary-market securities (securities after they have been issued). One of its provisions created the Securities and Exchange Commission (SEC), which has been a watchdog of the marketplace for the past 90 years.

The Securities Exchange Act sets up rules and enforcement mechanisms that govern things like corporate reporting, broker registration and tender offers (bids to buy a major share of a company’s stock). The act also prohibits fraudulent and/or unethical practices like insider trading, manipulation of stock prices and misrepresentation of information related to securities transactions.

 

EXAMPLE:

Executive One: “I need to call my dad and tell him to sell his shares right away.”

Executive Two: “You can’t do that. It would be considered insider trading.”

Executive One: “And who’s to say that’s not allowed?”

Executive Two: “Um, the SEC, under the auspices of the Securities Exchange Act of 1934.”